Report: Microsoft to Push Proxy Fight for Yahoo

By Reuters |
Posted 02-19-2008

Microsoft will authorize a proxy battle for Yahoo this week to convince the Web company's shareholders to agree on a takeover deal that the Yahoo board so far has rejected, the New York Times' DealBook blog said on Tuesday.

Quoting people briefed on the matter, the Times Web site said that Microsoft, which has been expected to raise its cash-and-stock bid originally worth $44.6 billion, would seek to nominate a slate of directors by March 13, if Yahoo's board did not enter talks.

A Microsoft spokesman said the company had always maintained it reserves the right to exercise all options but declined to comment specifically on the DealBook report. A Yahoo spokeswoman declined to comment, saying it does not respond to rumor or speculation.

A person familiar with the matter said a proxy fight would cost about $20 million to $30 million, but the source was not aware of Microsoft making the decision to pursue the fight.

"Microsoft is doing the smart thing. It's giving both the carrot and the stick," said Morningstar analyst Toan Tran. "The carrot was the big premium on Yahoo stock and now the stick is the threat of a proxy fight."

Proxy fights waged by corporations to facilitate a hostile acquisition are rare and represent less than 5 percent of all proxy fights since 2001, according to data from research firm FactSet SharkWatch.

Chairman Bill Gates said Monday that there was "nothing new" in the Yahoo takeover process. "We've sent our letter and we've reinforced that we consider that it's a very fair offer," he said.

The two companies are at a stand-off in Microsoft's unsolicited bid to acquire Yahoo. Microsoft has offered to buy Yahoo for $31 a share in cash and stock, a bid which Yahoo's board rejected, saying it undervalued the company.

Microsoft countered by saying that its offer was "full and fair," but did not say what it planned to do next.

The deal is now worth $41.6 billion due to the decline of value in Microsoft's stock.

The fees for paying lawyers and solicitation firms to wage a proxy fight are a fraction of what it would cost Microsoft to raise its offer. For every dollar the offer is increased, it would cost Microsoft an additional $1.4 billion.

If Microsoft decides to launch a proxy fight, it would nominate a slate of directors to take control of Yahoo's board and support the company's proposal. The nominees would be voted on at Yahoo's annual shareholder meeting in June.

On the other hand, Microsoft risks alienating Yahoo's rank-and-file by taking a hostile tactic. Unlike manufacturing companies with fixed assets, Yahoo's main asset to Microsoft is its engineering talent.

A hostile approach by Microsoft could lead to an exodus of talent to Google or other Web rivals.

A Yahoo-Microsoft proxy fight would be the largest corporate proxy fight in the eight years FactSet SharkWatch has been tracking statistics on this, it said.